Turns out physical retail isn't dead. In fact, brick & mortar retail seems to be undergoing a renaissance of sorts.
“Reports of my death have been greatly exaggerated.”
- Mark Twain
Turns out physical retail isn't dead. In fact, brick & mortar retail seems to be undergoing a renaissance of sorts.
In this episode we go sans guest, and delve into how a few savvy retailers (e.g Target) started seeing their stores as assets rather than liabilities prior the pandemic and began investing heavily in them (The Stores Strike Back). We also discuss how COVID helped accelerate an appreciation of the hybrid roles stores need to play in an increasingly blended world of digital and physical, leading to a counter-intuitive increase in store openings (The Stores Strike Back Again). Lastly, we take on how both legacy retailers and digitally native brands alike are accelerating store opening plans to be more customer relevant and to address the profit challenges from much of e-commerce.
But first we open up with retail stories that caught our attention this week, including what to make of yet another month of strong year-over-year retail growth. We also unpack Walmart's phenomenal profit turnaround and tepid e-commerce performance and then go up north to talk about Canadian Tire's blockbuster results. We also poke a bit of fun at Macy's salty news involving Wetzel's Pretzels and marvel at Door Dash's ability to incinerate cash.
Jason Goldberg's Forbes article:
Brick & Mortar Grew Faster Than E-Commerce in 2021.
Steve's original Forbes article from January 2019:
Photo by TOMMY VAN KESSEL on Unsplash
About Us
Steve Dennis is an advisor, keynote speaker and author on strategic growth and business innovation. You can learn more about Steve on his website. The expanded and revised edition of his bestselling book Remarkable Retail: How To Win & Keep Customers in the Age of Disruption is now available at Amazon or just about anywhere else books are sold. Steve regularly shares his insights in his role as a Forbes senior contributor and on Twitter and LinkedIn. You can also check out his speaker "sizzle" reel here.
Michael LeBlanc is the Founder & President of M.E. LeBlanc & Company Inc and a Senior Advisor to Retail Council of Canada as part of his advisory and consulting practice. He brings 25+ years of brand/retail/marketing & eCommerce leadership experience, and has been on the front lines of retail industry change for his entire career. Michael is the producer and host of a network of leading podcasts including Canada’s top retail industry podcast, The Voice of Retail, plus Global E-Commerce Tech Talks , The Food Professor with Dr. Sylvain Charlebois and now in its second season, Conversations with CommerceNext! You can learn more about Michael here or on LinkedIn.
Be sure and check out Michael's latest venture for fun and influencer riches - Last Request Barbecue, his YouTube BBQ cooking channel!
Michael LeBlanc 00:05
Welcome to Remarkable Retail podcast, season four, episode six. I'm Michael LeBlanc.
Steve Dennis 00:10
And I'm Steve Dennis.
Michael LeBlanc 00:11
Well, Steve, we stop, we, we're going to stop everything, stop the presses, there's a big breaking news, Macy's Wetzel's Pretzels, we got to stop everything and we're going to just dedicate the entire episode, well, not really, probably not.
Steve Dennis 00:24
Well, I don't, I'm going to break some news too. I feel like I need to go back and do a third edition of Remarkable Retail because this is the sort of, a strategic partnership, that is a game changer.
Michael LeBlanc 00:37
Yeah, yeah.
Steve Dennis 00:37
And I think for all of our customer insight professionals out there—
Michael LeBlanc 00:40
Yeah.
Steve Dennis 00:41
You know, they, they're just going to want to dig into the case study that said, the turnaround behind Macy's—
Michael LeBlanc 00:46
Yeah.
Steve Dennis 00:47
Is totally dependent—
Michael LeBlanc 00:48
Yeah.
Steve Dennis 00:48
Upon having a pretzel vendor—
Michael LeBlanc 00:51
Yeah.
Steve Dennis 00:51
In their stores.
Michael LeBlanc 00:52
Yeah, we, we jest, but we both had the same reaction when we saw the press release, and I think NRF covered in their news is the, like the headline story, I'm like, anyway. Anyways, listen, we got a great episode ahead of us. It is a solo episode, which I love and which the audience loves.
Michael LeBlanc 01:07
And thanks, again, to everyone who's tuning in, very strong support and great feedback. And this episode is, is the stores strike back again, again. So, we're, we're going back into familiar, yet so interesting, and developing territory with the idea of thinking about the role of stores, yeah.
Steve Dennis 01:27
Yeah, I mean, I think we're, you know, we have talked about aspects of this, certainly. And, you know, I don't want to preview things too, too much. But I think it's just, it's been really interesting. And we'll talk in the news in a second about, kind of, some data that supports this, but, but how physical retail is, kind of, having its day, despite, you know, yeah, obviously, the retail apocalypse narrative.
Steve Dennis 01:49
But I think, you know, this whole idea that e-commerce was so accelerated during the pandemic, and yet, stores still seem incredibly important. Different, but still incredibly important. So, we'll unpack that a bit.
Michael LeBlanc 02:01
There is no question the, the news of their demise was quite, quite early. And, and as we always knew, wrong in the way it was presented in the current, in the, in the narrative. Anyway, so supporting that, let's jump into the news, current news.
Michael LeBlanc 02:17
There's a bunch of numbers that came out for January and some other stuff that's happening around, of course, the news is talking this ridiculous month-over-month, but talk about your insight about year-over-year, retail in the States, and what's, what are you seeing in the numbers?
Steve Dennis 02:31
Yeah, so every month, we get this US Commerce report. And I don't know that we'll, we'll necessarily take this on, every time the data comes out. But I think as we emerge from COVID, it's, it's just interesting to see the continuing shift. So, kind of, the headline, I guess, was that year-over-year numbers continue to be very, very strong, way above what is, what is typical.
Steve Dennis 02:51
Though, the rate’s starting to moderate a bit, and I suspect this is, is a function of inflation, is a function of government stimulus wearing off. As far as looking at some of the detail in the numbers, I don't know there was anything that was really all that interesting. I mean, furniture, all things home, kind of, continue to do well.
Steve Dennis 03:14
You know, auto sales, parts, gasoline being hit by inflation, so some, some weakness there. But and where we're not quite seeing the return, though I think this is going to change pretty quickly, of a shift back to eating out at the expense of grocery. Grocery still looks to be quite strong—
Michael LeBlanc 03:34
Yeah.
Steve Dennis 03:34
And restaurants are kind of eh. But the, what I thought was the most interesting thing, and Jason Goldberg, our friend Jason Goldberg, was, was sharing this on LinkedIn yesterday. We're recording this on Friday. But the share of e-commerce to the total, actually went down. So, there's a little bit of fun with numbers here because physical retail is still so much bigger than e-commerce that—
Michael LeBlanc 04:00
Yeah.
Steve Dennis 04:00
Even though the rate of e-commerce is quite strong, because physical retail is doing quite well, it actually affected the overall penetration numbers. And Brendon Witcher, another friend of the show, from Forrester, was also talking about how he had predicted that this was going to happen. And I, you know, we've talked about this, kind of, rebalancing that's going on but, but, but it's, it's quite interesting after all the, you know, 10 years of e-commerce—
Michael LeBlanc 04:26
Yeah.
Steve Dennis 04:26
Acceleration death of stores that, that we've actually got the, the first quarter, or the first month I guess, where the share of e-commerce to the total has actually taken a reversal. Now I think it's going to take several more quarters before we, kind of, really see—
Michael LeBlanc 04:40
Yeah.
Steve Dennis 04:40
How this settles out. But that, I thought that was interesting, and really, kind of, speaks to some of the things we're going to get into in the rest of the episode.
Michael LeBlanc 04:46
Yeah, it's actually a good setup almost as if we, almost as if we planned it. Let's, let's dive in a little deeper. Walmart, couple of earnings, I want to talk about both Walmart earnings and, on this side of the border, Canadian Tire earnings. But let's, let's start with your observation about Walmart's earnings.
Steve Dennis 05:01
Yeah. Walmart reported this week and while their sales growth was, was overall, kind of, anemic, there are a couple of interesting things. First of all, one, and this is just a reminder of how, how badly some companies were hurt by the depths of the COVID crisis. They had a, what is it, it's like a $4 billion swing in operating earnings. They had very substantial net income this past quarter.
Steve Dennis 05:23
But that compares to losing over $2 billion a year ago. So, huge reversal in fortunes there. Their same store sales in both the Walmart brand and Sam's Club, were pretty strong in the US, not so much internationally. But an interesting number, and again, this is where we, kind of, get into this, like two-year stack, three years stack.
Steve Dennis 05:42
Their US e-commerce sales only grew by 1% year-over-year. So, then you, kind of, go and go like, well, what the hell is happening there, but that's a 70% increase from two years ago. So, again, you have this, kind of, very strong e-commerce growth, some moderation just because of the real spike we saw during the depths of the pandemic.
Michael LeBlanc 06:04
Yeah, and I also noticed one little thing that their advertising revenue had peaked, I think it was, kind of, close to $2 billion. Which is just interesting to me because last episode, or the episode prior, we were talking about Amazon finally breaking out their advertising revenue, so that's not their only game in town, right. So, you know, in store—
Steve Dennis 06:22
Absolutely not.
Michael LeBlanc 06:22
They got a nice network in-store where the vendors can buy what they need to buy and get in front of and get in front of the customer. So, you know, it's interesting. I just caught that, I thought it was interesting. All right, let's talk about Canadian Tire, this side of the border. Of course, breaking news that, today's Friday, they are, they're breaking up the Ottawa demonstration.
Michael LeBlanc 06:40
The borders are, are clearing. We're seeing, I'm seeing on social media the, the protesters are complaining that no one's being read their Miranda Rights but, of course, you know, this is Canada and there are no Miranda Rights here, so—
Steve Dennis 06:53
I was, I was just going to say is that, is that a thing?
Michael LeBlanc 06:56
That is not a thing on this side of the border, but anyway, our education system fails us every now and then. But—
Steve Dennis 07:03
The, the dumb is strong in, in these folks.
Michael LeBlanc 07:06
It, it is. But Canadian Tire put out blockbuster results. They've been doing very well. I mean, they're in the, you know, they, they're in the right category. They've, they've overcome store challenges, you know, stores being only able, in some ways, to operate at 50% in a couple of major provinces.
Michael LeBlanc 07:20
EPS, shares earnings is up 5%. You know, just great numbers. Comparable sales grew 11% in the quarter, 8% for the full year. So, Canadian Tire, you know, long, you know, many pundits, many years ago, decades back when other big box hardware stores came to Canada, they thought Canadian Tire was really going to suffer, but they've just strength upon strength.
Michael LeBlanc 07:40
And their logistics expertise is just fantastic. So, they really, they're really nailing it on, on their many, many banners, right. Canadian Tire the store, Sport Chek, a big sporting retailer, Marks, which is more for workwear, and then, they, did you know that they owned Helly Hansen, the brand Helly Hansen. Did you know that?
Steve Dennis 07:59
I did not know that, that's interesting.
Michael LeBlanc 08:01
Yeah, they're backward integrating. So, it's, it, it's just been their expertise in sporting goods. They keep it, kind of, not keep it quiet publicly, but they, you know, they don't advertise the connection. But yeah, they're a very interesting company.
Michael LeBlanc 08:12
So, if you're listening from the US, or elsewhere in the world, you don't know Canadian Tire, spend a few minutes to, to get to know them, because they're a super, super well run and, and really interesting company.
Michael LeBlanc 08:22
So, other things in the news that, we were kidding about Macy's, but we've got some other odds and sods in the news to, kind of, wrap us up. DoorDash earnings or lack thereof. I think that's an interesting footnote, if you want to say, on, on where we are with grocery and restaurants. What did you, what did you think about the DoorDash earnings, did anything pop out in your mind about those?
Steve Dennis 08:42
Well, this, kind of, continues the theme of the so-called profitless prosperity. You know, these companies they are like oh, my god, look how strong this business is. And yet they continue to incinerate cash. I think DoorDash is interesting. Obviously, the demand being really fueled by, by a lot of what COVID wrought.
Steve Dennis 08:59
At the same time, you hear a lot of complaints about how high their fees are, you know, restaurants and others really pushing back on the DoorDash. Not just DoorDash, but all those delivery companies' fees. A lot of issues with the, the drivers being underpaid, not having benefits and all that kind of stuff.
Steve Dennis 09:17
And you'd think they're pretty far along in their technology investments. So, you know, what is it going to take for these companies, because it doesn't seem to me like it's just a scale issue, right. Like, if you got unit cost issues, getting bigger doesn't necessarily help you.
Michael LeBlanc 09:30
Yeah.
Steve Dennis 09:30
So, at what point do these companies get on a glide path to profitability? Or do they really have to start to make some pretty substantial changes to get there, so. But Wall Street seems to like it okay.
Michael LeBlanc 09:43
Well, and in the restaurant sector, food service, an interesting one to keep an eye on, because they're, they're being impacted, of course, very much by COVID. But also, you know, US inflation, Canadian inflation numbers too, are quite high. And, you know, food inflation is leading the charge in terms of inflation from a component perspective, and that's got to get priced into menus somehow.
Michael LeBlanc 10:00
And these operators got to make money somehow. It's got to come from somewhere. Feels like everybody's going to have to take some pain, the customers, the restaurateurs, and these service providers. So, it just can't, it can't keep going on where nobody, everybody works super, super hard and restaurants and don't, doesn't make any money. It just doesn't work, right.
Steve Dennis 10:17
Yeah, I agree.
Michael LeBlanc 10:19
All right. Well, that was a good, quick overview of the news. Let's, let's jump into our section, the stores strike back again, again. All right, Steve, well let's get into it. We're calling this episode 'The Stores Strike Back Again, Again’. Now, notwithstanding that we're both Star Wars fans, what are we talking about here?
Steve Dennis 10:40
Well, so I wrote an article for Forbes almost exactly three years ago, I think. And I also talked about this idea of the stores striking back in my book. When I wrote that article, and then, you know, subsequently, kind of, expanded upon it in my book, the point I was trying to make about the stores striking back, it was a bit of this anti-retail apocalypse narrative.
Steve Dennis 11:06
Which I hope by now we've, we've, kind of, moved beyond that. But what I was, was trying to get at was that it seemed like there were quite a few retailers, particularly some pretty big established retailers, that were starting to invest in their stores again. And fundamental premise, I guess, was this idea that you should see your stores, ideally, anyway, as assets, not liabilities.
Steve Dennis 11:34
And you know, that, that was, kind of, the prevailing narrative, that physical stores were liabilities, they were, they were weighing folks down. And so, therefore, you should close stores, you should disinvest in them, kind of use them as cash cows. And I was seeing this, what I thought was a pretty interesting shift.
Steve Dennis 11:53
And I think what was going on, then, was that number one, there was this understanding that, which we've talked about before, that stores are, in fact, important in many cases, in delivering this omni-channel or harmonized experience. So, if you don't have a decent physical presence than that, then your digital business suffers. And vice versa. I think this was around the time that the ICSC had their halo effect report.
Michael LeBlanc 12:27
Right.
Steve Dennis 12:27
Which showed how stores could be very important in driving the online business. So, there were a bunch of things that were going on, that were, kind of, defying this, this retail apocalypse narrative. And I thought it was interesting. And I, and I think Target in particular, had announced that they were going to be spending many billions of dollars on their stores.
Steve Dennis 12:49
And that was pretty surprising to people, particularly when there was this, kind of, aside from the retail apocalypse narrative, there was also this sense that if you're a general merchant retailer, like a Target, or a Best Buy, or a Walmart, you're, kind of, doomed when it comes to competing with Amazon.
Michael LeBlanc 13:05
I mean, there's also this paradox, and it's, you know, a couple, three years later, we still think about it. And it's a good thing to frame to the listeners, because on the one hand, we see this incredible growth of e-commerce continuing, it's, you know, accelerated, certainly during the COVID-era, but it was always, it was always going to be so. In other words, e-commerce was, continued to grow. And so therefore, I just need less stores.
Michael LeBlanc 13:28
So, this is this paradox. There's, there's truth in both statements, right. You may need less stores, we've talked about, you've talked about extensively, me, you probably need your stores to do something different. But ultimately, do you need as many stores if 25% of your product is sold online? I guess that's where you get to talking about what does online retail even mean? And what's the strategic role of the store, right.
Steve Dennis 13:50
Well, perhaps the best way to, to answer that question, and I know we've talked about this a little bit as well, is, is understanding the difference between buying versus shopping. And, you know, so much of retail for a long time, was really having a physical store be a place to display product and go pick it up.
Steve Dennis 14:14
And if, if that's really all your physical store is doing, then there's a pretty good chance that a lot of the value of displaying inventory and having inventory available for customers to take with them, you really risk having a lot of that move online. Ideally it moves to your dot com business but, but, you know, in that sense, if it's just all about having these, kind of, expensive warehouses, and displaying a lot, then I think clearly, you need less space over time.
Steve Dennis 14:52
Understanding the role of the store is critically important. So, if that's all your store is about, yes, you, you risk having that migrate, and continue to migrate aggressively to pure e-commerce. But I think we started this when we started to see the blurring of the lines and this omni-channel harmonized, blurred world going on, and stores started to become important to fulfillment.
Steve Dennis 15:19
And were important in terms of advertising and other forms of service in support of e-commerce. Then you have to think, say, whoa, whoa, whoa, you know, not, not so fast. I was really at that time, you know, the kind of, first store strikes back narrative was, let's be careful what we wish for here, because if you just reflexively say we need fewer stores, and we need smaller stores, and we need to disinvest in our physical stores, you may actually start this downward spiral.
Michael LeBlanc 15:53
You may get what you want, which is, in unintentional consequences, you may get yourself a smaller business, right.
Steve Dennis 15:59
Exactly. And I, and I think, you know, there's other things going on, but I think you can clearly see, I mean, there's many, many examples of retailers that have been closing stores over the years, particularly the, the department stores, that haven't improved their fortunes. They, they didn't have a store closing or too many stores problem, as I often say, they had a not enough brand problem.
Michael LeBlanc 16:23
Yeah.
Steve Dennis 16:23
So, so like I said, I think it, there was this, kind of, interesting, I was trying to communicate a reaction that, you know, not so fast, or don't be too simplistic about if everything moves online, or more stuff moves online, not everything's moving online. But if more stuff moves online, that means we have to close stores, that means we have to make them smaller, that means we have to limit our investment.
Steve Dennis 16:45
So, that was the, that was the first shift. And as it turned out, a number of the retailers that I mentioned earlier, but you can add Tractor Supply, and Home Depot, and a bunch of others to the list, because they actually started to make that shift and started to invest in their stores more, differently, for sure.
Steve Dennis 17:06
But, but started to realize their importance in their total brand performance. They actually initiated a lot of things pre-COVID, that turned out to actually serve them very well, during COVID. Which, of course, I don't have any reason to think they, that was the driver, then, I think that was a scenario they were protecting against, they were doing it just because it was smart business.
Michael LeBlanc 17:29
Well, in your mental framework, if I take you back three years, and even if I take you back to when you wrote your 2022 predictions, because that's also where this comes up, the stores strike back again, again, is, were you thinking of the competitive advantage of stores vis a vis, you know, the fists of stone as our guest, Scott Galloway, would describe them.
Michael LeBlanc 17:49
Someone like an Amazon who can, you know, is obviously getting to a point where they're going to get everything to everybody, potentially within a very short amount of time. And there's, you know, there's a lot, a lot of people who can invest at the pace to achieve the same thing, unless you've got stores. Even then, were you, were you contemplating that as part of the future, in addition to what you're describing as the, the broader strategic role.
Steve Dennis 17:52
Well, it was, and one of the reasons why I pushed back pretty hard on the retail apocalypse narrative, was I felt like it ignored the value that physical retail can bring, in certain circumstances, not, not all. So, if you just say, well, everything that can possibly go online will go online, that leads you to do some things that will cause you, as we've talked about a second ago, you could make matters much worse, start a downward spiral.
Steve Dennis 18:40
But there's also opportunities to, to counteract some of Amazon's perceived, perceived value, or advantages, I guess, or just in general, e-commerce has advantages. You know, one of the things I know, it's come up many times, is that fulfillment in e-commerce tends to be pretty expensive. And so, rather than paying somebody to go take the product to somebody, having the customer do the work and come to your store, often is way more profitable.
Steve Dennis 19:11
And that was the other thing that I, that I realized, was at some point well somebody is going to say, well, wait a minute, it's actually not in all cases, but in many cases, it's actually very, very disadvantageous to our profitability. To let customers migrate to the e-commerce channel, even if it's our e-commerce channel. And so, I—
Michael LeBlanc 19:29
Yeah.
Steve Dennis 19:29
Thought there would be some countervailing forces from, from just a pure profit maximization standpoint. Not to mention you like to get customers in your store for, you know, to sell them other stuff or to have a tighter connection with your brand.
Michael LeBlanc 19:43
Do you, do you think the, the broader philosophy is changing out there? I talked to merchants who, you know, when asked about things like curbside or store pickup, they see it as, you know, this, I don't know what percentage it is, but some of the, a percentage see it as just an expensive way of doing physical retail.
Steve Dennis 20:00
Sure.
Michael LeBlanc 20:00
The rest are, kind of, more aligned to, yes, but as you said, there's a tremendous economic advantage to keeping consumers as part of the supply chain. As one of our guests once said, you know, go, go pick it up yourself, and where do you think we are on that spectrum?
Michael LeBlanc 20:16
Do you think more retailers today are turning their minds to, you know, really stores can provide that strategic leverage point, and, and we should get our heads around a different way of doing the math?
Steve Dennis 20:28
I've, I've definitely been hearing more of that recently. Certainly, had some retailers that, that realized that and we're acting on it. I think there's this aspect of, I mean, there's the gravitational pull of, of things moving towards e-commerce that, no given, no one retailer can do anything about. And so, you don't want to, you don't want to have a fight with gravity, as I often say, because gravity always wins.
Steve Dennis 20:56
But, but any good retailer, and you know this very well, there are things you can do to merchandise your assortment, or set your pricing strategy, or create other incentives to get your mix to be more favorable. So, I think you have to be really clear about, you know, accept the things you cannot change, but focus on the things that, that you can. And there are definitely opportunities to, to mix your way to, or merchandise your way to a more profitable mix.
Steve Dennis 21:29
I, you know, probably part of what, what happened, and, you know, when I say the stores strike back again, the first part of that without adding the additional again, was during the height of COVID. Obviously, we saw this massive shift towards all things digital and online. But at the same time, we saw stores get much more involved in e-commerce fulfillment.
Steve Dennis 21:58
And I think that gave many retailers a greater appreciation for the role of stores more broadly. I think it also made it pretty obvious, just from a cost analysis standpoint, how expensive some of this fulfillment was. If you had to get a local delivery service to drive it, or, or even shipping things—
Michael LeBlanc 22:24
Yeah.
Steve Dennis 22:24
To customers’ homes. Like I just, you know, I think that was certainly known generally, but the degree to which that happened, or, I guess, and/or retailers that suddenly had that be a much bigger part of their mix, like the, the numbers just, you, you couldn't escape the—
Michael LeBlanc 22:42
Yeah.
Steve Dennis 22:42
The financial impact from that. So, I think that's also causing retailers to go like, wait a minute, maybe there's a, as we hopefully get beyond COVID here, you know, maybe there's a better way of doing this.
Michael LeBlanc 22:54
Well, I also think that volume, in some cases, solves some sins. In other words, we had retailers who are getting, you know, 10, 20, 30 orders a day to curbside, which is really an inconvenience. It's actually, you know, you can't have much dedicated assets for that, go to 4 to 500.
Michael LeBlanc 23:13
And that volume may not sustain the way it is today. I just did a store pick-up myself here, locally. And perhaps a good example, yesterday had my groceries delivered to my doorstep, but this morning, I went and did a curbside pickup, went great. And the technology is so much better, the experience.
Michael LeBlanc 23:28
So, I think it's accelerated both the acceptance of, and then the volume said, okay, I'm going to start like, it seems like a self-fulfilling, not a self-fulfilling prophecy, but a virtuous circle of, if we do this right, we can actually be pretty remarkable at it and compete against some people we may not be able to compete against on a, the same level playing field.
Steve Dennis 23:50
For sure, I mean, there's, there's no question that there are certain aspects of, of all of this where volume is very, very helpful. There's the learning curve, right. So, if you didn't have much experience with it, or the experience curve, I guess, where you get better at it, and you discover new ways to do it that are better for the customer, better for your economics. Technology is getting better all the time.
Steve Dennis 24:12
But there clearly are parts of, I was just talking to somebody this morning about how unprofitable many aspects of, of the grocery business are when it comes to home delivery. And, you know, there are some, at least at our stage of understanding, there are some immutable forces there that if, you know, you're only selling $20 worth of stuff, and you got to pick it and send it through a local home delivery company, you know, it's pretty hard to figure out how you're ever going to make money on that.
Michael LeBlanc 24:39
Yeah.
Steve Dennis 24:39
But that also, I think, forces retailers to think more holistically about, well, maybe that order isn't profitable, but maybe the whole customer relationship is profitable—
Michael LeBlanc 24:48
Lifetime.
Steve Dennis 24:49
So, I'm not going to sweat the details on, on aspects of that. And I think in general, the, the customer lifetime value approach is a more helpful way to look at things when you're, when you're dealing in this digital-physical mix anyway. So, there's a lot, I think, that was really revealed or brought to the forefront during the depths of the pandemic that certainly some companies were, were paying attention to.
Steve Dennis 25:16
But I think it's just gotten to be much broader. So, so the stores striking back again, really happened during the, the pandemic, where there was just a lot more of, of an understanding of how stores were actually pretty important to serving a lot of what we label as e-commerce, even though, you know, it's really ordered online but fulfilled from a brick-and-mortar asset.
Michael LeBlanc 25:40
Now you touched on it in your comments, let's, let's focus in on it for the last, back half or back part of our, of our discussion. And that's the cost of customer acquisition. So, if you take a lifetime value approach, you may not make money on that single individual item. But you've got a customer, you've acquired a customer at what may be a very advantageous rate when you put it all together.
Michael LeBlanc 26:01
I mean, we, last week we had the great founders of The Citizenry on, who've got a store and also have online and, and we talked about, you know, does it make sense to have a lot more stores. Because it was, seems counter intuitive. But where do you sit in all this narrative around stores as both media, entertainment and a vehicle for new customer, new customer growth?
Steve Dennis 26:23
I think it's always been true that physical stores are important to, to, to, you know, our advertising or media, as Ted Stevens talks about it. I think, I think that's always been true. We got to a period where, as digital became more important, there was this belief that stores weren't so important and all of that, we can just go directly to the customer with low-cost digital advertising.
Steve Dennis 26:51
And there was a period where, you know, it was kind of the Wild Wild West, and where customer acquisition, as, as well as customer reactivation, was fairly inexpensive. But, but over the last several years, that equation has really changed. And so, it is the case now that, that stores can be particularly cost effective in acquiring new customers.
Steve Dennis 27:17
But I think they're also cost effective, in many occasions, in reminding customers of you. You know, whether that's your, you walk past them in the store in the mall, or drive past it, or what have you. So, there's a kind of a billboard effect, I think many people call that, of, of the store.
Steve Dennis 27:33
So, I think it's been both the appreciation of the stores as advertising, as well as some of the other roles that they can perform beyond just being places to go pick stuff up. But I also think, so many, particularly these digitally native vertical brands, we're seeing that it was impossible to get positive customer lifetime value given the cost of, of digital advertising. So, the environment has changed over the last few years. That, that—
Michael LeBlanc 28:03
That's the super important, that's the super important point. Yeah, cause—
Steve Dennis 28:06
Yeah.
Michael LeBlanc 28:07
Five years ago, it may be the case that I don't need another store, I'll just put another dollar into one of the platforms. But now that last incremental dollar, or the, the return on the last incremental dollar, I think it's up for grabs.
Steve Dennis 28:22
Yeah, so, and that's, that's why, you know, so, you know, the stores strike back was, kind of, that three years ago thing. The stores strike back again, was a little bit of, you know, specifically what happened during the depth, depths of COVID. The stores strike back again, again, which I put in my 2022 retail predictions, is I think there is, kind of, this, this renaissance that's going on with, with stores, because of the diverse roles that they can play, the more, kind of, hybrid role.
Steve Dennis 28:48
So yes, they're a place to go get stuff, but they're a place to do, buy online, pick-up in store, they may have a role in e-commerce fulfillment, they're great advertising, perhaps they're the most, you know, sort of, emotionally connecting part of your brand, if you've got something that's more experiential, or salespeople, or what have you.
Steve Dennis 29:07
So, I think there is this, this, you know, kind of, rebirth that's going on. And the data shows that, you know, more stores, I think more stores opened last year than were closed for the first time in a while. But we continue to see the numbers of store openings and, and significant reinvestment in physical stores go up.
Steve Dennis 29:29
And I do think this is a realization of, of, you know, a number of factors that we've talked about tilting the balance. I shouldn't say the balance, but reinforcing that physical stores are still important. The reason why I don't say tilting the balance is because e-commerce is, is clearly going to continue to grow at a faster rate than what gets rung up in a physical store. So, I'm not, I'm not suggesting—
Michael LeBlanc 29:51
Yeah, I was just going to say, I was just actually going to say, you know, to be clear, what you're not saying, you're not saying that brick-and-mortar will start growing faster than e-commerce. I mean, e-commerce growth, I mean, eventually it plateaus. It won't, nothing goes forever. But you're not saying that e-commerce, like in other words, the revival of stores, or the renaissance of stores, does not necessarily equal the, the slowing down of momentum on e-commerce, right.
Steve Dennis 30:16
No, I think they're, I think overall there's an inexorable pull towards, towards e-commerce. And, you know, there is a little bit, we've talked about this a couple of times, there's a little bit about, you know, what is e-commerce exactly. Because there is the—
Michael LeBlanc 30:29
Right.
Steve Dennis 30:29
E-commerce where a store is really not involved. And then there's the, I ordered it online, but the store is fulfilling it, so that, that muddies the, the waters a little bit. But, and I think this year, you know, we saw this a little bit last year, where e-commerce growth moderated because it was comparing to such a blockbuster year, you know, the first year of COVID.
Steve Dennis 30:49
So, there, there are a little, you know, little nuances, I guess, over the next, the next bit here, depending on the category. But no, I believe e-commerce is going to continue to pick up market share penetration, you know, probably a point and a half or so, a year, for the next several years. So, you've got maybe physical stores growing 3, 4, 5%, depending on the category, you'll have e-commerce growing probably 10 to 15%, depending on the category.
Steve Dennis 31:17
So, you know, that train has left the station. But the real thing is to, number one, don't believe the retail apocalypse. Number two don't assume because that is happening that that automatically means you should disinvest in your stores. Whether that's closing stores, or just not spending as much money on them. And then the third thing is really to appreciate this hybrid approach.
Steve Dennis 31:41
And, you know, get really granular on what you need to do. Because stores are definitely different today than they were five years ago. They will be quite a bit different, I'm sure, in a few years’ time than they are today. So, it's, it's really getting down to create that hybrid strategy that will be effective, which is a blend of digital and physical. Not a kind of, either or choice.
Michael LeBlanc 32:04
Yeah, right, right. Right on. One of the stories that stands out in my mind is the France, french-based Decathlon stores. Just opened up a store in Calgary. And it's an interesting store, because it is both an experience store, it is also the western distribution for e-commerce.
Michael LeBlanc 32:21
And they have these, you know, wonderful robots zipping around. And it's all with glass. So, like, I've seen people like watching it, like it become, you know, robots is entertainment, fulfillment is entertainment. I never saw, I never thought I'd see such a thing.
Steve Dennis 32:33
Yeah, and we talked about this a couple episodes ago about, kind of, starting with a blank sheet of paper—
Michael LeBlanc 32:38
Yeah.
Steve Dennis 32:38
You get the opportunity. Now you're fortunate if you're a Decathlon or a Warby Parker, or, you know, these companies that are adding a lot of new stores, you know, so you get to not only pick what is the hot location today, which, you know, that obviously shifts over time in terms of where you want to be, both in, you know, markets, but particular places within a market.
Steve Dennis 32:59
You get to, you know, construct that store in the size and layout and, and visuals in a way that is modern retail. So, that's a huge advantage. But for legacy retailers, you know, it's obviously more expensive to try to subdivide your space, or get out of a lease early, or whatever, but there's always going to be leases that are coming up for renewal. There may be opportunities to add really different kinds of stores, like Nike and Nordstrom, and others—
Michael LeBlanc 33:28
Yeah.
Steve Dennis 33:28
Bloomingdale's is doing. So, you have to think about, you know, what is, what is the particular role of, of the store broadly. But when you get a chance to refresh a store, reconfigure a store, put a new store in market, what, what is the purpose-built reason for that store that might be complementary to your existing footprint.
Steve Dennis 33:48
So, I think I'm, I'm excited, you know, it can't, as we talked about the reconfiguration episode, when it comes to physical assets, whether we're talking about stores or distribution centers, or what have you, you know, that's way more complicated and time consuming to significantly evolve your portfolio.
Steve Dennis 34:05
But there will be opportunities to, to do that over the next few years and I hope, I hope retailers will think more creatively about how that brick-and-mortar presence can enhance their overall brand strategy, in concert with what they're doing on the digital e-commerce side.
Michael LeBlanc 34:22
Well, we certainly see evidence of that creative thinking happening. I mean this Decathlon store actually went into an old Sears store, right. They took a multi-level Sears, Sears store and, and broke it into several pieces and, and from, from an empty store into rebirth and some innovative concepts.
Michael LeBlanc 34:37
So, I guess that that's a nice metaphor, or a nice example of how the industry keeps renewing itself. Well, listen, let's leave it there, great discussion. There's not a theme that we'll be laying down and never coming back to. Stores and the role of e-commerce is really central to, to retail these days. So, great discussion, and as I said, let's leave it there.
Michael LeBlanc 34:58
If you liked what you heard, please follow us on Apple, Spotify, or your favorite podcast platform, so you can catch up with all our great interviews and insights, and new episodes will show up each and every week. Be sure to check out our YouTube channel. And last but not least, tell your friends and colleagues in the retail industry all about us.
Steve Dennis 35:13
And I'm Steve Dennis, author of the bestselling book "Remarkable Retail: How to Win and Keep Customers in the Age of Disruption". You can learn more about me, my consulting, and keynote speaking at stevenpdennis.com.
Michael LeBlanc 35:13
And I'm Michael LeBlanc, producer and co-host of the Conversations with CommerceNext podcast, The Voice of Retail podcast, keynote speaker, and host of the all new Last Request Barbecue cooking show on YouTube. You can learn even more about me on LinkedIn, or meleblanc.co. Have a safe week everyone.
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